The coronavirus shouldn't be an excuse to expand the Durbin Amendment
Financial institutions like credit unions, community banks and payment networks are critical during this time of economic uncertainty. They are working hard to extend credit to people and business that need it and are supporting the electronic payments system that is helping businesses large and small sell online.
Electronic payments make sense during social distancing restrictions—they allow for the secure, contactless transfer of funds, making it safer for consumers to order food or buy supplies.
Unfortunately, restaurant chains and big-box stores are using this crisis to push a politically divisive and harmful policy. In a letter to President Trump and Congress, the National Restaurant Association requested that the government expand the Durbin Amendment’s debit card price controls to credit cards.
At a time when the whole country needs to work together, it is unconscionable for the retail industry to use the crisis as a smoke screen to impose price controls on interchange fees. Moving forward with this policy will only make things more difficult for consumers who are facing layoffs or worse.
Price controls on debit cards have had a host of unintended consequences over the last decade. Research by Federal Reserve economists shows these price controls led to fewer free checking accounts, which disproportionally hurt low-income consumers. Plus, even though retailers promised to pass along savings, research from the Richmond Fed showed they did no such thing. Instead, they pocketed the profits.
A weakened electronic payments system will also hurt many merchants that the retail industry claims to be helping. When customers use electronic payments, they are likely to spend more, and the merchants’ costs are reduced compared to the cost of handling and processing cash—as high as 15% for restaurants. In total, merchants keep about 98% of the revenue from every sale paid for by credit card.
Any assertion by these multi-billion-dollar industries that they are hurt by interchange fees fails to take into account that every interchange fee represents a purchase, one that would not be possible without this system. If the total amount of interchange that retailers pay goes up, it is because that they are making more sales—the interchange rate has remained relatively stable over the years.
There is no doubt that many restaurants and merchants are struggling right now. But it makes no sense to hurt consumers and financial institutions by expanding failed policies like the Durbin Amendment.